A Securities and Exchange Commission proposal covering soft dollars is pitting investors against market intermediaries.
The Council of Institutional Investors, which represents 130 pension funds handling a combined $3 trillion in assets, has given the SEC a thumbs-up for its move to re-write its soft dollar disclosure rules.
The Investment Company Institute, the Securities Industry & Financial Markets Association, and a collection of money managers and brokerages are protesting the move.
“We are particularly supportive of the proposed soft dollar benefit disclosures,” CII analyst Andrey Kuznetsov, told the SEC in a comment letter. CII’s concern, Kuznetsov noted was over investment advisers directing trades to broker-dealers based on self-interest rather than their clients’ interest.
Backing the CII is the CFA Institute, which believes the SEC proposal doesn’t go far enough. “We strongly support the proposed disclosure relating to soft dollar arrangements,” Kurt Schacht, executive director for the CFA Institute Centre for Financial Market Integrity, and Linda Rittenhouse, senior policy analyst at the Centre, told the SEC.
The two urged the SEC to go further and require investment advisers to provide a breakdown of their commission spends into their research and execution components. The CFA is a professional association representing over 95,000 analysts, portfolio managers, and other investment professionals, many holding Charter Financial Analyst designations.
At issue is an SEC proposal to require investment advisers to alter and augment the form and content of their annual Form ADV filings. Among its 19 suggested changes, the SEC is pushing money managers to more clearly spell out the conflicts of interest inherent in soft dollar transactions.
In stark contrast to the positions held by the shareholder advocates, the intermediaries–SIFMA, ICI, etc–criticized the SEC’s proposal as misguided. If money managers were to follow the SEC’s recommendations, they told the SEC, they would mischaracterize soft dollar arrangements and mislead or confuse the owners of the assets.
“We are deeply concerned that the negative connotations of some of the disclosure that Item 12 would require could lead a client to conclude that soft dollar arrangements are harmful, and therefore, adverse to the client’s interest,” the ICI said in a letter to the SEC.
The SEC received dozens of letters regarding its Form ADV proposal. It now must decided whether or not to finalize its proposal, and, if so, in what form.
